Not Your Typical Cell Service

Virgin and 7-Eleven offer cell-phone services, and Disney and ESPN aren't far behind. The goal? Custom services that foster loyalty and generate revenue.
Is there any bigger icon of popular culture than the cell phone? Probably not, and that's presenting new opportunities for all types of businesses. Virgin Mobile USA LLC, a subsidiary of Virgin Group, and convenience-store chain 7-Eleven Inc. were among the first to offer branded cell phones and services licensed from telecommunications carriers, and other companies are planning similar offerings.

Companies conducting these offshoot businesses are known as mobile virtual network operators, or MVNOs; they license spectrum from telecom carriers and resell cell-phone services to consumers in hopes of fostering customer loyalty and generating revenue. They're getting there by bundling cell phones with customer-specific services, such as ring tones, promotions, rebates, news feeds, and even the latest pop songs. Though the MVNO business has been slower to ramp up than originally expected, now there's momentum: Management consulting firm DiamondCluster released a report this month predicting that 30 to 35 million cell-phone users will get services through them by 2010, up from about 12 million today.

Mobile Choice ChartSome of the newer services may require cell phones with the latest technologies, such as video streaming, to get the full set of their options. A new service from Disney due next year, called Disney Mobile, will feature family-oriented content, and ESPN is planning ESPN Mobile, which will include sports programming.

Since it was formed three years ago, Virgin Mobile has signed on 3 million subscribers by reselling Sprint's network and offering a pay-as-you-go cell-phone service to young people, creating a symbiotic connection to its youth-oriented pop-music business. "We felt that the youth was underserved, unpenetrated, and unloved," quips Howard Handler, chief marketing officer at Virgin Mobile.

It's good business for telecom carriers, too. Such services let Sprint enter new markets, says David Johnson, director of MVNO new business development at Sprint. It's been the most active among the carriers, having landed Disney, ESPN, 7-Eleven, and Virgin.

7-Eleven entered the wireless business in the past year with a prepaid service called Speak Out. It's available for purchase at 3,900 7-Eleven outlets in the United States and is priced at 20 cents a minute. 7-Eleven has extended its reputation for convenience to cell phones. "We believe people are tired of complicated wireless-phone service plans, contracts, and not being able to roll over their minutes. So we're providing the products and services convenience-oriented customers want," says Brad Haga, 7-Eleven's services category manager.

Some companies are forming from the ground up to serve as MVNOs. Movida Communications, a startup offering pay-as-you-go wireless services for the U.S. Hispanic population, recently licensed Sprint's network. Verizon Wireless licensed its network to Amp'd Mobile, a youth-oriented mobile entertainment company launching this fall. But licenses are as far as telecom vendors have gone--customer data, product development, distribution, marketing, and billing are all handled by the MVNOs.

That's one reason businesses interested in offering such services need to think long and hard about the investment in time, resources, and money. "It takes millions of dollars over a few years before companies see a positive return," Sprint's Johnson says. Another obstacle is convincing customers that the company has any business providing a cellular service.

The future success of these services likely will depend on the quality of content they can provide. That will require them to be extra creative in differentiating themselves from traditional wireless carriers.

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James M. Connolly, Contributing Editor and Writer
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